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Note 17 - Income Taxes
 12 Months Ended
Dec. 31, 2021
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

17. Income Taxes 

 

Income Tax Expense

 

The components of the Company’s income (loss) before income taxes and its provision for (benefit from) income taxes consist of the following:

 

  

Years ended December 31,

 
  

2021

  

2020

  

2019

 

Income (loss) before income taxes

            

Domestic

 $(2,529) $(25,722

)

 $38,299 

Foreign

  4,956   (2,902

)

  (2,178

)

  $2,427  $(28,624

)

 $36,121 

 

 

  

Years ended December 31,

 
  

2021

  

2020

  

2019

 

Provision for (benefit from) income taxes:

            

Current:

            

Federal

 $494  $357  $6,245 

State

  (635)  (1,970

)

  1,884 

Foreign

  167   49   202 

Total current

  26   (1,564

)

  8,331 

Deferred:

            

Federal

  (553)  (1,980

)

  1,086 

State

  (426)  (1,070

)

  324 

Foreign

  (754)  (28

)

  (813

)

Total deferred

  (1,733)  (3,078

)

  597 

Total (benefit from) provision for income taxes

 $(1,707) $(4,642

)

 $8,928 

 

Deferred Tax Assets and Liabilities

 

Significant components of the Company’s deferred tax assets and liabilities consist of the following:

 

  

December 31,

 
  

2021

  

2020

 

Deferred tax assets:

        

Lease liability

 $4,684  $5,147 

Inventory reserves

  2,453   2,004 

Net operating loss carry forwards

  2,822   4,775 

Stock-based compensation expense

  2,782   1,742 

Tax credits

  3,022   2,485 

Compensation accrual

  1,236   1,037 

Foreign currency exchange

  282   229 

Accrued expenses and other

  491   - 

Gross deferred tax assets

  17,772   17,419 

Less: valuation allowance

  -   (857

)

Deferred tax assets

 $17,772  $16,562 

 

  

December 31,

 
  

2021

  

2020

 

Deferred tax liabilities:

        

Acquisition-related intangible asset

 $(14,770) $(13,972

)

Depreciation

  (8,509)  (8,493

)

Right of use asset

  (4,650)  (5,111

)

Accrued expenses and other

  -   (881)

Deferred tax liabilities

 $(27,929) $(28,457

)

         

Net deferred tax liabilities

 $(10,157) $(11,895

)

 

As of December 31, 2021, the Company had a federal net operating loss (“NOL”) carryforward of $4.6 million and state NOL carryforwards of $2.7 million. The federal NOL carryforward will begin to expire in 2029 and the state NOL carryforwards will begin to expire in 2026 through 2039, if unutilized. Federal NOLs generated in tax years after 2017 do not expire but are limited to 80% of taxable income. The Company also had NOL carryforwards in Italy of $7.1 million that do not expire but are limited to 80% of taxable income. As of December 31, 2021, the Company had federal and state research and development tax credit carryforwards of $2.5 million and $0.5 million, respectively, that will begin expiring in 2023.

 

In 2021, the Company transferred certain intellectual property held by its Italian subsidiary to the U.S. in exchange of cash consideration, resulting in a gain in Italy, to more closely align the economic ownership of this intellectual property with the Company’s current and future business operations.

 

The Company evaluated the likelihood that it would realize the deferred income taxes to offset future taxable income and concluded that it is more likely than not that the majority of its deferred tax assets will be realized through consideration of both the positive and negative evidence.  As a result, during the year ended December 31, 2021, the Company released the valuation allowance recorded related to the net deferred tax assets in Italy in the amount of $0.9 million. 

 

 

Effective Tax Rate

 

The reconciliation between the U.S. federal statutory rate and the Company’s effective rate is summarized as follows:

 

  

Years ended December 31,

 
  

2021

  

2020

  

2019

 

Statutory federal income tax rate

  21.0%  21.0

%

  21.0

%

State tax expense, net of federal benefit

  (3.2%)  1.5

%

  5.5

%

Stock compensation

  22.3%  (2.2

%)

  0.6

%

Section 162(m) limitation

  8.7%  -   0.3

%

Goodwill impairment

  -%  (16.8

%)

  -

%

Change in fair value of contingent consideration

  (36.7%)  6.7

%

  -

%

Change in state apportionment

  (29.8%)  4.9

%

  -

%

Federal, state and foreign tax credits

  (28.4%)  2.2

%

  (1.5

%)

Valuation allowance

  (35.3%)  (3.0

%)

  -

%

Other permanent items

  11.0%  1.9

%

  (1.2

%)

Effective income tax rate

  (70.4%)  16.2

%

  24.7

%

 

Accounting for Uncertainty in Income Taxes

 

The Company had no unrecognized tax benefits for the years ended December 31, 2021 and 2020, respectively. The Company does not anticipate experiencing any significant increase or decrease in its unrecognized tax benefits within the twelve months following December 31, 2021.

 

In the normal course of business, Anika and its subsidiaries may be periodically examined by various taxing authorities. The Company files income tax returns in the United States on a federal basis, in certain U.S. states, and in certain foreign jurisdictions. The associated tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate. With few exceptions, the Company is no longer subject to income tax examinations for years prior to 2018.

 

Upon the settlement of certain stock-based awards (i.e., exercise, vesting, forfeiture, or cancellation), the actual tax deduction is compared with cumulative financial reporting compensation cost, and any excess tax deduction related to these awards is considered a windfall tax benefit. The Company records windfall tax benefits to income tax expense. The Company follows the with-and-without approach for the direct effects of windfall/shortfall items and to determine the timing of the recognition of any related benefits. The Company recorded a windfall tax benefit in income tax expense of $0.1 million in 2021 compared to $0.2 million in 2020 and an immaterial amount in 2019.